A. N. Forsyth v. Banbury Investments Ltd.

LDNT000306A/2000

LDNT306/2000 (Review)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 306 of 2000 (Review)

 

BETWEEN
	A. N. Forsyth	Applicant
	AND
	Banbury Investments Ltd.	Respondent

 

Coram: Member W K LO

Date of review hearing: 9 February 2001

Date of judgment: 5 March 2001

 

___________________

JUDGMENT

___________________

 

Background

1. The Applicant is the tenant and the Respondent the landlord of the subject premises described as Flat E3 (also known as Flat E on 2nd Floor) of No. 12 Broadwood Road, Happy Wanchai, Hong Kong ("the Premises"). The Applicant on 31st August 2000 applied to the Lands Tribunal for the granting of a new tenancy. The Respondent did not oppose the application. At the hearing, the parties consented that the new tenancy would be a one year tenancy commencing from 1st October 2000. The outstanding issue was in the amount of prevailing market rent.

2. The Tribunal heard the application and granted the following orders on 15 December 2000:

1. By consent, new tenancy for 1 year commencing from 1st October 2000;

2. New rent at $20,400 per month (exclusive of rates); leave to the Applicant to pay the Respondent the arrears of rent, if any, or leave to the Respondent to pay back over-payment of rent to the Applicant, if any, within 1 month;

3. With liberty to apply by either party regarding the other terms of the new tenancy;

4. No order as to costs.

3. The Respondent applied for a review of the above Orders and the granting of the following orders:

1. To dismiss the application of the case.

2. To re-consider the market rent.

4. The Tribunal decided on 10 January 2001, within one month from the date of the above Orders, to review the said Orders. The review hearing was fixed on 9 February 2001.

Review application by the Respondent to dismiss the case

5. The Respondent submitted that the Applicant "is not entitled to apply for a tenancy since our CR101 was sent to the principal tenant, Pioneer Asphalts Limited at a wrong timing, i.e. 6 months earlier when the tenancy was still under II of the Landlord and Tenant (Consolidation)". Therefore, the Respondent submitted that the Applicant should be liable to pay to the Respondent the same rent of $27,386 per month (which sum of rent was paid by the principal tenant to the Respondent) but the Applicant was prepared to deduct a sum of $1,000 being the parking fee charged by the Building Manager to the Respondent since the tenancy for the subject premises did not include a car parking space. The Respondent also sought leave to file notice of opposition.

6. The Respondent acknowledged that during the original hearing, the Respondent had consented to the granting of a new tenancy to the Applicant. Ms. Choi, the representative for the Respondent admitted that she became aware of the provisions of the Landlord & Tenant (Consolidation) Ordinance only after the Tribunal dismissed a similar new tenancy application (Reference LDNT 305 of 2000) soon after the date of judgment of the present case. The Respondent therefore lodged an application for review of the present case.

7. The Applicant objected to the Respondent's application for leave to file notice of opposition at this stage. The Applicant disputed that the Respondent, having consented the granting of a new tenancy to the Applicant, could now be permitted to oppose the grant. In fact, after the judgment was delivered by the Tribunal, the Respondent had proposed to sign a new tenancy with the Applicant based on the Orders made on 15 December 2000. However, the Respondent unilaterally cancelled a proposed meeting only about 24 hours before the schedule, following the results of the Tribunal's decisions for LDNT305/2000.

8. The Tribunal has ordered for the transcripts of the original hearing for the present review application. The Tribunal has perused the transcripts and is satisfied that the parties had, at the commencement of the original hearing, consented to the granting of a new tenancy by the Respondent to the Applicant. The consent also extended to the agreement of the commencement date and the duration of the new tenancy. Under the circumstances, the Tribunal decides that the Respondent is bounded by the consent given at the date of the original hearing. The Respondent's application for leave to file notice of opposition is therefore dismissed. Also, the Respondent's application to dismiss the Applicant's new tenancy application is dismissed.

Review application by the Respondent to re-consider the market rent

9. The Respondent submitted that in the alternative of a dismissal of the granting of a new tenancy to the Applicant, the Tribunal should re-consider the market rent for the subject premises. There were two grounds:

"(i) The previous judgment is based on the rental transaction of Unit E4 only. At present, we submit a tenancy agreement of another unit (Unit C2) in the subject development for your re-assessing the prevailing open market rent of unit E3. For information, the existing rental of Unit E2 is HK$27,000 exclusive of rates to our knowledge.

(ii) Besides, according to the other owners, the condition of Unit E4 is poor as there has been water leakage problem from the roof."

Section 11A. (Review of decision) of Lands Tribunal Ordinance, Cap. 17, Laws of Hong Kong provides:

" (4) The Tribunal may, in any review, hear and receive any evidence it thinks fit for the purpose of determining the issue between the parties."

10. Since the Respondent submitted that the new rental information of Flat C2 was not known to the Respondent at the time of the original hearing, the Tribunal agreed that this additional rental evidence could be adduced by the Respondent in this review hearing. Likewise, the Applicant was given the opportunity to give any new rental evidence or any new information pertaining to the rental evidence produced in the original hearing.

11. Ms. Choi for the Respondent produced Exhibit R-5 which contains the first page and the backing sheet of the Tenancy Agreement for Flat C2 signed between the landlord, Lau Siu Hoi and the tenant, Wee Dennis Chi Wai. It was for a term of 2 years from 21 February 2000 at a rent of $26,000 per month, inclusive of rates and management fee. Ms. Choi also gave evidence that she telephoned the landlord of Flat E4 who advised her that the tenancy for Flat E4 commenced in early 2000. She further asked the landlord why the rent for Flat E4 was so low. The landlord did not elaborate, but said that he had the premises re-painted and then cut the telephone line. She had reason to believe that Flat E4 suffered from water seepage from the roof above.

12. Ms. Choi further gave evidence that the landlord of Flat E2, a Mr. Chow, had told her that the rent for Flat E2 was $27,000 per month, on exclusive basis. Mr. Chow told her that the tenancy commenced in early 2000 but declined to provide her with a copy of tenancy agreement. In the final submission, Ms. Choi for the Respondent asked that the PMR for the subject premises be determined at $26,386 per month, on exclusive of rates basis.

13. The Applicant produced a number of documents, marked as Exhibits A-7 to A-10. They were summed up below:

(1) Exhibit A-7- a signed letter from Mr. Poole, the tenant of Flat E2 who confirmed that the tenancy for Flat E2 was signed nearly two years ago.

(2) Exhibit A-8 - a signed letter from Mr. Bruce Baron, the tenant of Flat E4 who stated that “I have never encountered any water seepage from the roof of my apartment. Furthermore this apartment is no hotter than any of the apartments on lower floors on account of the thickness of the floor slab, this is an old building which faces West, and the apartment also has new style aluminium windows fitted."

(3) Exhibit A-9- a set of photographs showing the interior of Flat E4.

(4) Exhibit A-10- a copy of a tenancy agreement of Flat B4 (Flat B on 3rd Floor and roof and one car parking space) made on 7 February 2002 between the landlord and the tenant. The tenancy was for a term of two years commencing from 1st February 2001 and expiring on 31st January 2003 at a rent of $24,000 per month, inclusive of rates and management fee.

(5) Exhibit A-11- analysis of rent passing for Flat B4.

(6) Exhibit A-12- a set of photographs of Flat B4.

14. Mr. Forsyth, the Applicant, gave evidence that he had viewed the inside of Flat B4. It was in very good condition. The tenancy for Flat B4 was a renewed tenancy of the sitting tenant, Mr. Bruce Baron. Regarding the estimate made by the Tribunal, Mr. Forsyth objected to the adjustment for the roof radiation. He asked the Tribunal to take into account the opinion given by Mr. Baron in the his letter produced as Exhibit A-8. He said that Mr. Baron's flat, Flat E4, was not hotter than the subject premises. Also, he submitted that for the subject development, the disadvantages associated with the requirement to go one storey upward were cancelled by the benefits of enjoying a better view, which was the normal situation for walk-up buildings in Hong Kong.

15. The Applicant in the final analysis submitted a calculation sheet (Exhibit A-11) setting out his estimate of the PMR of the subject premises based on the comparable rent of Flat B4.

Determination of the PMR by the Tribunal

16. In light of the evidence, the Tribunal decides to take into consideration the new rental evidence produced by the parties during the hearing. The rental evidence for Flat E2 is considered to be not a good comparable since it was confirmed by the tenant in writing that the tenancy agreement was signed about two years ago. The remaining rents in the development are in respect of Flats C2, B4 and E4. They were adjusted in the manner shown below:

Adjustments

17. Regarding the adjustments of the comparables Flat B4 and Flat E4 to reflect the value of the portion of the roof above the flats, the Tribunal decides to stick to the previous adopted assumption. That is, the value of the roof is taken as to be equal to 10% of the value of the flat below. Similarly, the previous time adjustment for Flat E4 remains unchanged. A similar adjustment is also applied to Flat C2 which has a similar commencement date as Flat E4.

18. As to the adjustments for the effects of the solar heating on the roof of the subject development and for the differences in floor levels, the Tribunal agrees with the Applicant's evidence and the submission that no adjustment is required in view of the construction of the subject development and the balancing effect of having a better view as one goes one storey upwards.

19. The Tribunal also made the necessary adjustments to the comparables to reflect the liability of the tenants of the comparables to pay rates and management fee, where appropriate.

20. Thus, having regard to the evidence of the after-adjusted rents of the three best comparables adduced by the parties, the Tribunal determines that the prevailing market rent of the subject premises, on the basis of exclusive of rates and exclusive of management fee, shall be $20,600 per month.

Orders

1. The Respondent's application to dismiss the Applicant's application be dismissed;

2. Upon review, the new rent for the new tenancy granted by the Respondent to the Applicant be revised to $20,600 per month, on the basis of exclusive of rates and exclusive of management fee;

3. Other than the revision of the new rent, all the other Orders remain the same as in the Judgment dated 15 December 2000

4. No order as to costs for this review application.

 

 

 

Representation:

Mr. A. N. Forsyth, the Applicant, appearing in person

Ms. Choi, Yin Mei Posinea representing the Respondent

LDNT306/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 306 of 2000

 

BETWEEN
	A. N. Forsyth	Applicant
	AND
	Banbury Investments Ltd.	Respondent

 

Coram: Member W K LO

Date of hearing: 23 November 2000

Date of judgment: 15 December 2000

 

_________________

JUDGMENT

_________________

 

Background

1. The Applicant is the tenant and the Respondent the landlord of the subject premises described as Flat E3 (also known as Flat E on 2nd Floor) of No. 12 Broadwood Road, Happy Wanchai, Hong Kong ("the Premises"). for some years.

2. The Applicant has been residing in the Premises as a sub-tenant for 21 years. He has been paying a rent of $24,000 per month. Since the principal tenant did not wish to continue renting the Premises with the Respondent, the Applicant on 31st August 2000 applied to the Lands Tribunal for the granting of a new tenancy. The Respondent did not oppose the application. At the hearing, the parties confirmed that the new tenancy would be a one year tenancy commencing from 1st October 2000. The outstanding issue is in the amount of prevailing market rent. The Applicant in the opening suggested that the rent should be $21,132 per month, on the basis of inclusive of rates and exclusive of management charges. He arrived at this figure by multiplying the area of the Premises, 1,174 sq.ft. by his estimated unit rate of $18 per sq.ft. On the other hand, the Respondent asked that the rent should be, based on the current Rateable Value of the Premises, in the sum of $27,000 per month, exclusive of rates and management charges.

3. The Applicant gave evidence in person. He produced a tenancy agreement (Exhibit A-2) of the flat upstairs, described as Flat E4 in the subject development (i.e. Flat E on 3rd Floor and Roof, together with one car park space). He obtained the copy of agreement from the tenant's husband, a Mr. Bruce Baron. He had no relationship with the tenant (Ms. Chao Pui Han) or Mr. Baron but only met and knew them after they moved into the upstairs flat from their former home in the Mid-levels. The tenancy agreement of Flat E4 show that the rent passing was $23,500 per month, inclusive of rates and use of one covered car park space at the basement and portion of roof.

4. The Applicant gave evidence that he had viewed the interior of Flat E4 before the moving in by the Barons family. He found that it had been completely refurbished. That was in January 2000, before the signing of the tenancy agreement of Flat E4. He was advised that some additional works had been carried out after the signing. The Applicant then produced photos showing the exterior of the Premises, the open parking area, driveway and the common staircase of the subject development (Exhibit A-3). He also produced photos showing the interior condition of the Premises (Exhibit A-4) and photos showing the much newer and superior condition of a high-rise building ("The Broadville", No. 4 Broadwood Road) nearby (Exhibit A-5). In Exhibit A-5, he also included a copy of an extract of a classified advertisement in the South China Morning Post. That show two asking rents in the buildings nearby:

(1) The Broadville- 1,527 sq.ft. asking $32,000 (at unit rate of $20.9 per sq.ft.);

Beverly Hills- 1,972 sq.ft. asking $42,000 (at unit rate of $21.2 per sq.ft.).

5. From the above, the Applicant argued that his estimate of a unit rate of $18 per sq.ft. for the Premises should be reasonable.

6. The Applicant suggested that the recent letting of Flat E4 should provide the basis for estimating the prevailing market rent of the Premises. He opined that in view of the differences between the Premises and Flat E4 in the use and enjoyment of roof area, a covered car park in the basement and the liability for payment of rates, the rent passing of Flat E4 should be adjusted as follows:

7. In the cross examination, the Applicant accepted that the area of 1,164 sq.ft. for the Premises should be the net area. He further agreed that the Rateable Value of the Premises in the years 1998-2000 and 2000/2001 were respectively $379,800 and $323,700.

8. When questioned by the Respondent if there was any relationship between the landlord and tenant of Flat E4, the Applicant replied that he had been advised by Mr. Baron that the tenant of Flat E4 did not have any relationship with the landlord and did not know the landlord prior to the introduction by the agent.

9. Ms. Choi Yin Mei Posinea, the representative of the Respondent gave evidence. Following the notice from the former principal tenant of the Premises to deliver back the Premises to the Respondent, the Respondent made an offer of a new tenancy to the Applicant at the rent of $27,000 per month, exclusive of rates after being advised by the Applicant that he had been residing in the Premises for a long time. The Respondent submitted that the condition of the Premises was just a matter of decoration which should not affect the assessment of the rent. The Respondent also gave the view that the rent for the Flat E4 was lower because it was situated on the top floor, thus suffering from the solar heating of the roof and the disadvantage of locating on a higher floor level than the Premises, in a building without lift service. This was supported by the lower Rateable Value of the Flat E4 as compared with the Premises. Also, from the rental indices published the Rating & Valuation Department and Jones Lang LaSalle (Exhibits R-2 and R-3 respectively), there have been a slight increase in rental values of about 1 to 2%, from 1st quarter of 2000 to 2nd quarter of 2000 (Rating & Valuation Department's figures), or a similar increase from April 2000 to October 2000 (Jones Lang LaSalle's figures).

10. In the final submission, the Applicant submitted that out of 24 units in the subject development, the Respondent and its parent group of company, Hopewell Holdings, owned about half of which most were vacant. It has been Hopewell's policy of not renewing any tenancy nor to find any new tenant for any of the vacant flats. As for the remaining flats owned by the other owners, there has been no new letting except the letting of Flat E4. In the circumstances, the Applicant queried the availability of sufficient source of direct rental evidence to the Rating & Valuation Department for their purpose of assessing the Rateable Values for the Premises and other flats in the development. Therefore, the Applicant submitted that the Tribunal should not have regard to the Rateable Value but should rely on the transaction evidence of Flat E4 in its determination of prevailing market rent for the Premises. The Respondent clarified that the Hopewell group actually owned about 11 flats. Apart from the Premises which was tenanted, another flat was tenanted by an employee. As for the rest, they were all vacant at the date of valuation.

11. Tribunal's determination of the Prevailing Market Rent

Under Section 115 of Part IV of the Landlord & Tenant (Consolidation) Ordinance, Cap. 7, "prevailing market rent" means-

"the rent, exclusive of rates at which the premises the subject matter of a tenancy to which this Part applies might reasonably be expected to be let, at the date on which the current tenancy would, apart from section 119N, have come to an end under section 119(1) or section 119A(5), on the terms of the new tenancy granted under this Part, but disregarding the effect of this Ordinance." (underline added)

12. Under section 7 (2)of the Rating Ordinance, Cap. 116, "Rateable Value" of a tenement shall be-

"An amount equal to the rent at which the tenement might reasonably be expected to let, from year to year, if - (a) the tenant undertook to pay all usual tenant's rates and taxes; and (b) the landlord undertook to pay the Government rent, the costs of repairs and insurance and any other expenses necessary to maintain the tenement in a state to command that rent". (underline added)

13. There is a similarity in the definition of the prevailing market rent and the Rateable Value. However, since the Rateable Value was an estimate of a notional rent assessed by the Commissioner of Rating & Valuation for the purpose of collecting rates, it should not replace the direct rental market evidence in any exercise of assessing the prevailing market rent under the Landlord and Tenant (Consolidation) Ordinance. Also, it is inappropriate to compare the asking rents of flats in some other much newer developments in the Happy Valley area with the Premises.

14. In the present application, although the parties had before them only one actual rental transaction, it nevertheless should be analysed and relied upon in the assessment of the prevailing market rent for the Premises. I accept that for valuation by direct comparison method, this is not the ideal situation. However, the Premises is located in a development which is towards the end of their economic life and has been apparently in the course of awaiting merging of ownership and redevelopment. As such, I agree with the Applicant that under these circumstances, there is very little, if any, actual rental market evidence in the subject development.

15. Based on the rent passing for Flat E4, I decide that the following adjustments are warranted in assessing the rent for the Premises:

16. In the light of the evidence produced by the parties, I decide that the above adjustments and their quantum to be fair and reasonable in the present application. They are in line with the usual adjustments applied for similar premises by the landlords and tenants in the market. I allow a downward adjustment of $1,000 as suggested by the Applicant to reflect the benefit of a covered car park in the basement for Flat E4. For the assessment of the value of a portion of the roof to the tenant of Flat E4, I accept the Applicant's suggestion of assuming that the value of the roof portion to be equal to about 10% of the value of the flat below. Since the value of the flat after allowing for the value of the covered car park is $22,500, the value of the roof is arrived at by the following formula: $22,500 divided by 110% and multiplied by 10%. This gives a figure of $2,045.

17. I agree with Ms. Choi that for a walk-up building, a lower floor normally should fetch a higher rent because of the benefit of easier access from the ground. Similarly, the adverse effects of solar heating on the roof and possible water seepage problem from the roof normally bring down the rent of the top floor flat in most walk-up buildings. As such, some downward adjustments to reflect these factors are warranted. In the absence of evidence, I have made appropriate estimates under the circumstances for the Premises. Finally, I decide that in the absence of other better evidence, time adjustment based on Jones Lang LaSalle should be made. For the period from Jan 2000 to October 2000, the index shows an upward increase of about 2.5%. Hence, a similar time adjustment is made in this case.

18. Thus, I determine that the prevailing market rent of the Premises, on the basis of exclusive of rates, shall be $20,400 per month.

Orders

1. By consent, new tenancy for 1 year commencing from 1st October 2000;

2. New rent at $20,400 per month (exclusive of rates); leave to the Applicant to pay the Respondent the arrears of rent, if any, or leave to the Respondent to pay back over-payment of rent to the Applicant, if any, within 1 month;

3. With liberty to apply by either party regarding the other terms of the new tenancy;

4. No order as to costs.

 

 

 

 

Representation:

Mr. A. N. Forsyth, the Applicant

Banbury Investments Ltd., the Respondent